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On December 1, 2019, Keenan Company, a U.S. firm, sold merchandise to Velez Company of England for 100,000 euros. Collection of the receivable is due
On December 1, 2019, Keenan Company, a U.S. firm, sold merchandise to Velez Company of England for 100,000 euros. Collection of the receivable is due on February 1, 2020. Keenan purchased a foreign currency put option with a strike price of $1.10 (U.S.) on December 1, 2019. This foreign currency option is designated as a cash flow hedge. Relevant exchange rates follow:
Date | Spot Rate | Option Premium |
Dec. 1, 2019 | $1.10 | $0.10 |
Dec. 31, 2019 | $1.09 | $0.08 |
Feb. 1, 2020 | $1.07 | N/A |
What would be the net impact of this transaction on Keenan's income statement in 2020?
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